In overseas shipping, the MOL Group's main business field, cargo flow is affected by economic trends and product markets in nations around the world. And in today's global business movement, there is risk that unforeseen circumstances such as war, terrorism, and political or social unrest will have harmful effects on a key region or market. In particular, an economic slowdown and decline of demand in major trade nations (markets) such as North America, Europe, Japan, and China can lead to reduced international trade and a falloff in freight rates in markets susceptible to price competition. Such a scenario could harm MOL Group business performance.

Other significant risks to MOL Group business activities are as follows:

A) Exchange Rate Fluctuations

Most MOL Group business earnings are U.S. dollar-based overseas shipping revenues. Costs include vessel capital, fuel, cargo handling charges overseas, and general administration costs on U.S. dollar and local currency bases. We are working to base more of our costs on U.S. dollars and conduct currency hedge transactions to minimize the negative impact of fluctuations in the U.S. dollar exchange rate. However, appreciation of the yen against other currencies (particularly the U.S. dollar) puts downward pressure on MOL Group profit, because dollar-based revenues surpass expenditures based in foreign currencies. In addition, vessels owned by overseas subsidiaries and affiliates, and the related liabilities, are denominated in foreign currencies. This may affect values in the yen-based consolidated balance sheets, because of the exchange rates used at the time of exchange, even though the original value in local currency remains unchanged.

For example, a change in the exchange rate of 1yen per US$1 affects our consolidated ordinary income by up to 2.0 billion yen for FY2011, although this is subject to change by currency hedge transactions.

B) Bunker Price Fluctuations

Procurement of fuel to operate vessels is indispensable to MOL Group business. While we attempt to stabilize and reduce procurement costs of bunker oil through fuel hedge transactions, higher prices naturally decrease our profitability. Generally, the market price of bunker oil is linked to the price of crude oil, and can be affected by world economic trends, conditions in oil-producing regions, U.S. reserve levels, the inflow of speculative funds, and so on.

For example, a change in bunker price of US$1 per ton affects our consolidated ordinary income by up to 0.2 billion yen for FY2011. However, fuel hedge transactions may affect this amount.

C) Interest Rate Fluctuations

The MOL Group conducts ongoing facility investment to build new vessels and renew others. We have been working to reduce interest-bearing debt, although we borrow capital from outside mainly for operational funds and facility investments. We strive to stabilize interest rates by borrowing at fixed rates and implementing interest swaps. The funds procured at variable interest rates, as well as future costs of fund procurement, may be affected by interest rate fluctuations.

D) Legal Restrictions

Overseas shipping, the MOL Group's main business field, is subject to a broad range of legal restrictions, such as national and international regulations and classification society standards related to the safety of facilities and vessel operation. We are also subject to laws covering transport, commerce, monopolies, tax rates, exchange controls, environmental protection, security, and so on, as well as business and investment licensing standards in all nations where the MOL Group develops any of its business activities. Strictly adhering to all these laws and regulations may result in higher costs, and non-compliance may limit MOL Group activities and adversely affect our business results.

E) Vessel Operations

As stated in the MOL Group Corporate Principles, "We will promote and protect our environment by maintaining strict, safe operation and navigation standards." We have established a unique MOL Safety Management System to create an effective, wide-ranging accident prevention system by providing comprehensive crew education and training systems. However, with a fleet of more than 700 vessels in constant operation all over the world, there is still the risk of marine accident, especially one that results in an oil leak or spill and the subsequent environmental pollution. Naturally, an accident could have a severe impact on our business.

The previous examples illustrate some - but not all - of the major foreseeable risks facing the MOL Group's business.